How your brain will help you to save money

by Cathrine Jansson-Boyd, Anglia Ruskin University

The cost-of-living crisis continues. The UK rate of inflation is up yet again, and expected to rise further. And as energy, transport, fuel and groceries all get more expensive, there are fears that over 4 million British households are experiencing financial difficulties.

A recent survey suggests, perhaps unsurprisingly, that low prices will become increasingly important to consumers in the coming month. Some will still take perceptions of good value and customer service into account, but for the majority, price will be the key factor when it comes to deciding where to shop and what to buy.

Research in neuroscience suggests that our brains are extremely well suited to helping achieve this. Making difficult decisions involves different parts of the brain working together towards a conclusion.

Typically, when people make decisions about buying something, they engage in one of two processes, using what psychologists call a “valuation system” or a “choice system”.

The valuation system involves the ventromedial prefrontal cortex (which processes notions of risk and fear) and the reward system of the basal forebrain, and ranks options based on their perceived worth and possible reward.

So imagine you’re at the supermarket shopping for food, with a limited budget. You could either buy a box of eggs from chickens housed in crowded barns for £1.20, or a box from free range chickens which costs £2.20.

You may well end up buying the cheaper eggs, even though you know that it is ethically preferable for chickens to roam freely. In this instance, you based the choice entirely on the price, because the valuation system nudges people towards the option that will give them the best and most immediate reward – in this case, saving money.

The choice system meanwhile, is part of the work of the dorsolateral prefrontal cortex, which (putting it very broadly) is concerned with reasoning, memory and making decisions as well as the dorsal anterior cingulate cortex, and parietal regions.

So if you’re still at the supermarket, with the eggs in your basket, you consider buying a new sugar bowl, to replace a broken one. You find one that appeals, but it is also rather expensive, making you hesitate.

What happens in such situations is that when faced with uncertainty, the prefrontal cortex becomes increasingly active and inhibits impulsive decisions, which in turn enforces a natural aversion to loss – in this case losing money.

Meanwhile, another part of the brain, the dorsal anterior cingulate cortex, helps to improve decision making by delaying your response to give you time to process alternative options, such as looking for a more affordable bowl.

Risk aversion

Both systems demonstrate that when we are thinking about prices and costs, our brain biology has ways of ensuring we look for an alternative that we can afford – or at least gives us better value for money.

A natural aversion to risk helps consumers facing financial uncertainty to choose the cheaper of two similar products rather than being persuaded by a fancy label or by habit. Paying more becomes an avoidable risk. Other “values” such as brand loyalty of customer service, become almost obsolete as price dominates.

But it is worth remembering that our brain functions don’t always get it right. Having financial worries can be stressful, and research shows that stress can have a negative effect on the way people make decisions. They can, for instance, become “risk-seeking” in the face of loss, meaning that they may take unnecessary risks.

Partially this is because elevated dopamine responses make people focus on immediate and potentially high rewards. Someone who is feeling stressed and looking for a loan could easily end up clicking on a deal that could end up making their financial situation far worse. There is also evidence that stress causes people to factor completely irrelevant information (like comparing random numbers to an interest rate) into their decision making process.

Overall then, decision making is a complex process, and as everything gets more expensive, price is likely to become an increasingly dominant factor. But while politicians argue, and the companies we rely on raise their prices, at least our brains are hard-wired to help us make decisions that go some way to protect us from the ravages of the current economic climate.

Cathrine Jansson-Boyd, Reader in Consumer Psychology, Anglia Ruskin University

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